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Posted by Dave Trabert on Monday, February 27, 2012

The February 21 newsletter published by Kansas Education Policy Report, a subscription-based news service located in Topeka, included the following accusatory statement:

"That’s because districts receive large property tax distributions in May of each year, near the end of the school year, which makes their June 30 carryover amounts look artificially high – a quirk in the system that is often exploited by critics who allege districts carry excessively large cash balances.” 

Saying that critics are ‘exploiting’ what they call a quirk in the system is simply not true and an attempt to brush aside a very substantive issue.  Anyone who has followed our writing on carryover cash balances knows full well that the primary issue is that the balances continue to grow each year, which the commentary completely ignores.

Payments and expenditures occur on the same schedule each year.  These funds operate on a cash basis, just like personal checking accounts.  Since there is an annual reconciliation of outstanding encumbrances as of June 30, the only way that ending unencumbered balances grow is for annual revenue to exceed annual expenditures.  

The July 1 unencumbered balances by district and fund are available at  Annual unencumbered carryover cash balances in current operating funds (excluding those dedicated to Capital Outlay, Debt Service and Federal funds) grew every single year since 2005 as follows:

2005 – $458.2 million
2006 – $494.1 million
2007 – $542.3 million
2008 – $587.1 million
2009 – $699.2 million
2010 – $774.6 million
2011 – $868.3 million

The 2011 total includes $8.3 million in Activity Funds which had not previously been reported by districts, but the balance of the $402 million difference between 2005 and 2011 ending balances represents state and local taxpayer funds that districts received but did not spend.  

Districts need some degree of carryover balance but the fact that these balances have grown nearly 90% in the last six years is a clear indication that the funding formula is giving districts more money than they need to provide current services.  

Further evidence is found by examining the trend in Current Carryover Ratio, which measures the beginning balance in current operating funds (as described above) as a percentage of that year’s current operating expense (total expense less capital and debt service).  The 2006 Current Carryover Ratio was 11.7% (July 1, 2005 beginning balance divided by 2005-06 current expenditures).  The ratio dropped a bit in the next two years but look at what happened in the last few years:

2006 – 11.7%
2007 – 11.0%
2008 – 11.3%
2009 – 11.9%
2010 – 14.4%
2011 – 16.0%

The 2012 budgeted ratio is even higher, although the exact amount depends upon which budget data one uses from KSDE.  The Carryover Reserve Ratio report on KansasOpenGov also shows that dozens of districts have consistently operated with less than a 10% ratio…quite a few even operate with less than 5%.  That is a strong indication that many of those districts operating with reserve ratios of 20% (and much higher) are likely doing so by choice, not necessity.

Deputy Commissioner Dale Dennis has said on numerous occasions that districts increased their reserves (by not spending tax dollars on current services) in the last three years in reaction to changes in state funding and because the state has been late making payments.  Motivation aside, districts’ choice to put some of their aid dollars in the bank indicates that at least that amount of money must be considered discretionary; surely, districts would not deny services to students that they believed are truly needed when they have more money to spend.  

It is also noteworthy that districts have reportedly been paid on time this entire year and it is anticipated that that will continue into the future.  Still, the last report from KSDE showed that districts had only chosen to draw down $24 million of the $154 million authorized by SB 111.

The bottom line, if you will, is that every dollar unnecessarily appropriated to one service is a dollar that is either taken away from another service or is unnecessarily taken from taxpayers.  We believe government has a fiduciary and moral obligation to use taxpayer funds efficiently and effectively.   While there is no question that government entities need some degree of carryover reserves, the evidence overwhelming indicates that school district operating reserves are much higher than is necessary.
Posted by Todd Davidson on Thursday, February 23, 2012

The current K-12 funding formula is not designed to provide schools with the minimum resources they need to achieve required outcomes while also operating and being organized in a cost-effective manner because such a study has never been conducted in Kansas.

The Augenblick & Myers 2001 study that was used by the Montoy courts was supposed
to have taken efficiency into account but, as explained by Caleb Stegall in “Analysis of Montoy vs. State of Kansas,” A&M chose to ignore efficiency. 

A&M presented the court with inflated numbers by deliberately including 50 high-spending districts that did not meet their own criteria for 'successful schools' - those achieving required academic outcomes and also operating in a cost-effective manner.  

The subsequent Legislative Post Audit study merely duplicated the bogus A&M study.  It is particularly noteworthy that LPA carefully pointed out on page 2 of their report that they were not asked to determine what it would cost to achieve required outcomes AND have schools organized and operating in a cost-effective manner.

The only logical thing to do is to finally have such a study conducted and then fund it.

Dave Trabert

Posted by Dave Trabert on Tuesday, February 14, 2012

You may have read about a new plan in the Wichita Eagle to incentivize new home purchases.

"With new-home construction foundering and builders buried under the weight of taxes on unsold lots, the Wichita City Council on Tuesday will look at a plan to jump-start the flagging local homebuilding industry.

"City staff is recommending adoption of a five-year property tax moratorium for the first 1,000 qualifying new houses built over two years. The city and the Wichita Area Builders Association started developing the plan in October in an attempt to reinvigorate a market that has stagnated with declining sales and tight credit."

This proposal may be a well-intended effort to help home builders and some taxpayers, but it would do so at the expense of all other businesses and taxpayers.  Unless the City of Wichita reduces spending by the amount of the tax rebates, the foregone revenue will have to be made up by everyone else.  Government doesn't just spend money when it writes checks, it also spends taxpayer money when it gives credits, rebates, loans and other types of incentives.

City Council should also recognize that rebating property taxes to buyers of certain new homes will also harm taxpayers who are trying to sell existing homes.  

If the City of Wichita wants to help (all) taxpayers, the best way it can do so is to cut spending and reduce everyone's taxes.  The City's annual financial reports show that property tax collections increased from $59.3 million in 1997 to $115.4 million in 2010.  That's a 95% tax increase.  Over the same period, Wichita's population increased 16% and inflation was up 33%.  There is no good justification for taxes to increase at nearly double the rate of population and inflation.
Posted by Todd Davidson on Monday, February 13, 2012

The Institute on Taxation and Economic Policy (ITEP) recently published a paper arguing that the nine states with the highest income taxes are actually faring better than the nine states with no income tax.  ITEP cites Gross State Product (GSP) per capita, Real (inflation-adjusted) Median Household Income, and the Unemployment Rate as their basis.

Using per-capita data to justify that high-tax states are doing well deliberately discounts overall growth in GSP, employment and population shifts.  One needs only a simple drawing to see GSP Per Capita, Real Household Income, and the Unemployment Rate are not appropriate measures.

In this first scenario our state has nine individuals; seven earning an income and two unemployed.  GSP per capita is $3, Real Median Household Income is also $3, the Unemployment Rate is 22%, and lastly our overall wealth is $28.  Now supposed the first 4 individuals decide to seek opportunity in another state.  Now our state looks like this:

Our GSP per capita is $5, Real Household Median Income is $5, the Unemployment Rate is 0%, but our overall wealth is now $25.  Not one person’s wealth increased and in fact our state is worse off, we have fewer jobs and less wealth.

This is precisely what IRS data suggests is happening.  From 2000 to 2009 the average adjusted gross income for taxpayers leaving the 9 states with the highest income taxes was $59,502, which is $5,000 lower than the average AGI for those states.

Instead of focusing on math trickery to justify our spending habits we need to focus on the policies that foster wealth and job creation.

  • The nation saw 2.9% decline in private sector employment between 2001 and 2010.
  • The 9 highest income tax states saw 4.8% decline in private sector employment.
  • The 9 states without an income tax saw a 2.4% increase in private sector employment.

(Source: Bureau of Labor Statistics)

Posted by Todd Davidson on Wednesday, February 8, 2012

Jonathan Williams of the American Legislative Exchange Council and coauthor of Rich States Poor States, spoke to the Senate Committee on Assessment and Taxation, a pro-growth crowd for lunch, and the House Committee on Taxation.  Jonathan reiterated what has been the case for decades now, a lower tax burden will lead to more output, more opportunity, and more jobs.

Below is a slide Jonathan presented to our legislators yesterday, as you can see,  states with No Income Tax achieved faster growth in Gross State Product, Population, and Jobs within the past ten years.  

Less intuitively Total State Tax Receipt Growth in the non-income taxing states actually outpaced the highest income taxing states.  How is this possible?  Texas gained 4 congressional seats worth of people who now pay sales tax, property tax, as well as any other tax in the state ~ Jonathan Williams.
In-short people move to the opportunities that a low tax environment fosters.

Kansas has a choice, do we take lessons from the other laboratories and propel our state into a high level of economic performance or do we continue to watch as other states pass on by with bold moves to foster more output, more opportunity, and more jobs.